Make-or-Buy, Traditional Analysis
Wehner Company is currently manufacturing Part ABS-43, producing 55,000 units annually. The part is used in the production of several products made by Wehner. The cost per unit for ABS-43 is as follows:
Direct Materials $45.60
Direct Labor 9.80
Variable Overhead 2.75
Fixed Overhead 3.90
TOTAL $62.05
Of the total fixed overhead assigned to ABS-43, $15,400 is direct fixed overhead (the annual lease cost of machinery used to manufacture Part ABS-43), and the remainder is common fixed overhead. An outside supplier has offered to sell the part to Wehner for $58. There is no alternative use for the facilities currently used to produce the part. No significant non-unit-based overhead costs are incurred.
Required:
1. Should Wehner Company make or buy Part ABS-43?
Wehner should - Select your answer -makebuyItem 1 the part. This will produce total cost savings of $____?____ .
2. What is the maximum amount per unit that Wehner would be willing to pay to an outside supplier? Round your answer to the nearest cent.
$_____?_____ per unit